Ever-Rising Benefits Costs Are Tough to Manage

Credit unions compete to recruit and retain quality employees by offering a wide range of benefits. But could that competitive edge be in jeopardy because of rapidly rising costs?

Over the last few years, the high costs of benefits have forced more credit unions to make cutbacks, increase employee cost sharing and leverage other cost savings initiatives such as workplace wellness programs

In a recently released white paper, the CUNA Human Resources/Training Development Council looked at how credit unions are addressing the challenges of meeting employees’ needs through affordable benefits programs, providing the financial security they seek and helping credit unions retain and recruit productive employees. In addition to reviewing the current benefits landscape and its popular program components, the white paper also offered insights on analyzing credit unions’ benefits programs as well as making and implementing benefits decisions.

A broad range of benefits have become more important among employees. A 2012 MetLife study found that 49% of employees said that because of the economy, they are counting on employers’ benefits to help with their financial protection needs. Surprisingly, that percentage climbs to 66% among Generation Y workers and 55% for Generation X employees.

But for all employers, there is a troubling trend occurring in the workplace.

The MetLife study found that the percentage of employees who feel a very strong sense of loyalty toward their employees is at only 42%–a seven-year low. That means as the economic recovery grows stronger and new positions become available, many employees will be looking for new jobs.

What’s more, 58% of employees surveyed by MetLife said that benefits are an important retention driver. This percentage is even higher among Gen Y employees at 63% and 62% for Gen X workers.

But as the MetLife study pointed out, employers underestimate the power of leveraging benefits to keep employees.

For example, while 66% of employees surveyed said health benefits are an important driver of their loyalty to their company, only 57% of employers believed so. And when 59% of employees said retirement benefits are very important for influencing their company loyalty, only 43% of employers realized this.

Human resources executives are under more pressure than ever to find ways to balance the rising costs of benefits and keeping employees satisfied and loyal.

“As HR professionals, much more is being asked of us to find ways to mitigate the costs of benefits,” said Norma Stein, vice president of human resources of the $9.4 billion SchoolsFirst Federal Credit Union in Santa Ana, Calif. “The level of sophistication and knowledge of health care benefits and other benefits has really ratcheted up, so we are always looking at a variety of ways to keep providing the benefits that employees want.”

SchoolsFirst FCU still provides its 1,200 employees with fully paid medical and dental benefits, as well as a 100% match for their 401(k) plans. But as CUNA’s 2012-2013 Credit Union Staff Benefits Survey recently showed, higher benefits costs are forcing more credit unions to make tough decisions.

Among credit unions with $5 million or more in assets, the average benefits expense per full-time employee was $12,838 in 2011. That number increased to $13,472 per full-time employee, according to CUNA’s survey.

Health care insurance accounted for more than half of the total benefits costs. In 2011, credit unions paid an average of $6,711 per full-time employee for health care insurance. That number increased to $6,940 per full-time employee last year.

Despite these high costs, however, 96% of credit unions provide health insurance, including credit unions with five or more employees. Nearly 90% of credit unions with $5 million or more in assets provide retirement plans and 98% offer paid leave, according to the CUNA survey. But the percentage of credit unions offering group life insurance, long-term disability and short-term disability is substantially less, 82%, 74% and 47%, respectively.

Because of higher benefit expenses, 31% of credit unions added or increased employee cost sharing in 2012. This year, 43% of credits unions expect to add or increase employee cost sharing. In addition, 24% of credit unions are expected to enhance or add workplace wellness programs, which are up from 22% last year. Credit unions are also trying to hold down costs by improving employee communications to educate staff about their health care options and ways to cut costs and monitoring health care data for cost utilization patterns.

Moreover, just under 20% of credit unions–up from 15% in 2010– are offering high deductible plans, health reimbursement arrangements and health saving accounts. While these options reduce health care premiums, they simply shift more of the financial burden on employees whose salary raises barely keep pace with standard of living increases.

The white paper includes brief case studies of how three credit unions–the $130 million Public Service Credit Union in Romulus, Mich., SchoolsFirst FCU and the $90 million Woodstone Credit Union in Federal Way, Wash.–are managing high benefits costs.

Schools First FCU sent out request for proposals to compare how their benefits program stacked up against new ones.

“When we did the RFPs, we experienced a savings of $1.2 million based upon the original quote we received from our previous vendor that we are no longer with,” said Stein. “That was significant. That translated into not having to extend any cost sharing to our [employees], and we also got a rate lock for two years. If credit unions have been with their insurance provider for a while, it’s time to take a close look at their plan and make comparisons with other plans. You may still have a competitive plan, but you won’t know that until you conduct the RFP.”

Woodstone CU decided to join the Northwest Financial Associations’ Employee Benefit Trust. With more than 100 employers in Washington and Oregon, the trust can offer savings through aggregation.

“The first year we joined the trust was 2004, and we saw a 25% rate reduction,” said Jane Parker human resources manager at Woodstone. “It took us until 2007 until costs rose to where they been in 2003.”

In addition to increasing co-pays and deductibles, the credit union also phased out employee dependent health care coverage after determining that very few financial institutions in the market paid for dependent health care coverage. Parker also said Woodstone increased emergency room co-pays to encourage its 28 employees to use their primary care physicians or urgent medical care centers that are less expensive than emergency room care.

Some credit unions that consider cutting a long-held benefit, also look at replacing it with a more cost-effective option.

For example, Public Service CU has been evaluating whether to freeze its defined benefit pension and replacing it with an employer match to the 401(k) plan. The pension is quite costly and market trends show fewer and fewer employers are offering defined benefit plans, said Ashley Carr, human resources manager at Public Service CU, which has 58 employees.

“I also think employees don’t realize the benefit of it…by moving exclusively to the 401(k)," she said.

Consider These Before Changes

According to the Kaiser Family Foundation, health care premiums have increased by 97% since 2002.

That is not a typo.

And with the bulk of the provisions of the Patient Protection and Affordable Care Act kicking in this year and in 2014 with additional mandates, fees and taxes, it’s pretty much a guarantee that health care premiums will continue their upward trend, though no one really knows by how much.

The rising costs of benefits will continue to put pressure on credit union budgets, forcing many CUs to make some tough decisions that will change benefits and impact employees.

Before making those decisions, Norma Stein, vice president of human resources for SchoolsFirst FCU, said CUs should determine what benefits are most important to employees. And if changes need to be made to those benefits, Stein suggested, credit unions need to figure out which of those changes will be acceptable to employees and what can the credit union afford.

A modified benefits package also will depend on your credit union goals as well as your employee demographics. To determine those goals, the CUNA white paper suggests answering the following key questions.

Do you want a strong benefits package to compete with other employers to attract and retain the best employees?

Do you want a middle-of-the-road package because you rely on other factors for attracting and retaining talent?

Do you want your benefits to stand out as better than other employers?